National Tax Journal

State Earned Income Tax Credits and Participation in Regular and Informal Work

Samara Gunter

66 National Tax Journal 33-62 (March 2013)

Abstract:

This paper examines how low-income single parents alter their regular and informal labor supply in response to the earned income tax credit (EITC). Variation in state EITCs from 1997–2005 identifies changes in informal and regular labor supply of unmarried low-income parents in response to tax credits. The informal-sector participation of single fathers declines by 7.3 percentage points, conditional on working in the regular sector, if a state EITC increases by 10 percent of the federal credit. Regular-sector hours worked per week increase by 4.5 hours and informal sector hours per week fall by 2.2 hours with no significant effect on total hours.